How Do I Fund an Expansion of My Small Business?

How Do I Fund an Expansion of My Small Business?


by


Getting funding can be hard, but it doesn’t need to be impossible.


Having been a business mentor for more than 20 years, I’ve helped a lot of small companies with their expansion plans.

The No. 1 obstacle for many of them? Securing outside funding to pay for that expansion.

You will need money for growth. Only a teeny, tiny fraction of business owners are self-funded. It’s nearly impossible to grow without borrowing, having investors or selling your soul to get enough gas money to keep the world’s greatest idea rolling.

The Menu of Options

Here are some proven ways to fund or defer funding:

» Borrow from family and friends

» Borrow from a bank

» Sell blood at a blood bank

» Get investors

» Get a loan from a vendor or supplier

» Delay payments to a vendor or supplier and quickly sell more of your existing product

» Fire your unproductive worker(s) and work their 40 hours yourself

» Launch a Kickstarter campaign

» Sell your car (then use your Kickstarter money on a used mo-ped)

» Get a mortgage or three. It worked for Dan Aykroyd’s character in the original “Ghostbusters” movie: “Everybody has three mortgages nowadays.”

I have done all of the above except use Kickstarter or sell blood.

Why Getting Funding Is Harder Than It Needs to Be

Most new or small business leaders go wrong when:

» They think their good idea means it’s easy or automatic to get funding.

» They don’t prepare a simple financial model and have their financial statements at the ready.

» They can’t tell a clear, precise story on how they will use the funding and pay it back.

» The leader doesn’t know how to personally “go without” in order to succeed.

» They blame others for their financial problems.

» They think they deserve low interest or a favorable rate when the company is vulnerable.

How to Get It Right

If you don’t explain what you need, on paper, you aren’t going to get funded.

So, construct a clear, simple financial model, in Excel, of what the funding needs and uses are. Have it memorized and in hand, and have your financials current and ready as well.

Give a verbal explanation that a fifth-grader can understand. Avoid “I’ll have to get that for you,” which shows you aren’t fully prepared. Be prepared. Any delay in funding from a investor shouldn’t be your fault. Delays destroy momentum, waste the investor’s valuable time and can kill early-stage expansion.

If you need funding for something you can touch, like tools and equipment, often the lender is more easily interested. Sometimes the seller of hard items will work closely with a lending or leasing company. Additionally, you should always be nice to your vendors: Some of them will go out on a limb to loan you money themselves if they respect you. (And because they can repo and resell the equipment if you don’t pay.)

Getting funding for software, programmers, general overhead or payroll isn’t easy. Why? Because being short on these items means you either can’t plan financially or can’t sell the product, and those are indicators of deeper problems.

Keep in Mind …

Getting funding is usually time-consuming and painful. People don’t just fork money over. Money is hard to come by, and you might not know this, but it is hard to get for the funder as well. Money is scarce.

Money is most easily wasted or lost by the inexperienced, and lenders and investors know it. The failure rate of startups remains very, very high.

I mentioned I was writing this article to one of my sons, who is now the president of a company. He mentioned three things that are relevant.

  1. The leaders of small companies always need to be building relationships that can lead to funding. That’s part of the leader’s job. Be nice to everyone, and establish relationships before you need them.
  2. Be careful about turning down offers. “You remember when I raised $2.1 million as CFO for another company?” my son said. “The CEO said, ‘I think we can do better.’ Then he promptly ran out of time and money, and wound up with only $1 million and gave up almost twice the equity. Know when to take the money.”

And, finally…

  1. “Dad, a long time ago, I thought you told me when you were about 20, you were so out of money you actually sold some blood?”

That’s absolutely not true!

Written by

Lirel Holt is the founder of CARSTAR, a franchise of auto body repair shops. He is also a founding mentor with the Helzberg Entrepreneurial Mentoring Program (HEMP). HEMP helps established, but growing small businesses take the next big step in their journey. www.hempkc.org

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